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hopelessly vague, and that a police power exception to the clause is justified based on the history of the clause, which, in his view, demonstrates that the clause was intended to prohibit legislative "rentseeking” or income-redistributive laws. 179
Douglas Kmiec and John McGinnis similarly find a police power exception justified by the history of the clause, which, as they see it, shows that the clause was not aimed at state laws designed to regulate the morals of citizens.
The Supreme Court has defended the police power exception to the contract clause based on practical, rather than textual reasons. Specifically, the Court has pointed out that failing to recognize a police power exception to the contract clause would allow private parties to insulate themselves from the effect of future laws enacted to protect the peace, health, safety and morality of the public merely by enshrining their actions in a contract.
Though lacking any principled basis as a matter of constitutional interpretation, the Court's portrayal of the practical consequences of failing to recognize a police power exception to the contract clause is accurate. Given that state courts generally refuse to enforce contracts that are inconsistent with prevailing law, any state police power law enacted subsequent to an otherwise valid contract will violate the contract clause by rendering that contract unenforceable. Therefore, since the apparent remedy for a contract clause violation is an injunction barring the state from enforcing its law, 182 the state would be powerless in such a circumstance to enforce its police power law against the private party.
We doubt that the Founders would have understood the contract clause to limit the states' police powers in such a manner. As a result, we are reluctant to conclude that there is no police power exception to the contract clause. Neither do we think it proper, however, to ignore the text of the clause in favor of its history or in favor of perceived practicalities. Consequently, we believe the only possible conclusion at this point is to say that further consideration needs to be given to the textual basis for the police power exception to the contract clause.
179 See Epstein, 51 U. Chi. L. Rev. at 706, 732 (1984) (police power needed to allow states
to protect health, safety, and third party interests). 180 See Kmiec and McGinnis, supra, at 35 (police power properly can be advanced by a
state to further a health, safety, or morals interest). 181 See Allied Structural Steel Co. v. Spannaus, 438 U.S. at 241-42; Hudson Water Co. v.
McCarter, 209 U.S. 349, 357 (1908). 182 See p. 67, infra.
Given the apparent absence of any explicit textual support for the existence of a police power exception to the contract clause, it is not surprising that articulating a principled limitation to that exception is equally troublesome. Certainly the Supreme Court has not produced much useful thinking along those lines; as Professor Epstein has observed, the Supreme Court cases have made “no principled effort to define the proper scope of the police power.'
Assuming there is a police power exception to the clause, we can be reasonably certain that such an exception would not authorize states to pass debtor-relief type laws, since those laws probably were the principal historical evil the contract clause was designed to address. This conclusion, of course, still leaves us to determine what were the relevant evils of those state debtor-relief laws.
Based on what he describes as the "structure of the Constitution," Professor Epstein argues that the state debtor- relief laws in question were merely one form of a more general historical evil the Constitution was designed to correct, that evil being the abuse of legislative factions. Referring in particular to Federalist No. 44's condemnation of the state legislative battles prevailing at the time of the Constitution's framing aimed at the redistribution of opportunities and wealth between factions, Epstein argues that the contract clause was an effort by the Founders to prevent legislative "rent-seeking behavior.” 186 Based on this historical analysis, Epstein argues that the police power exception to the contract clause should not extend to the “transfer of wealth by special interest
183 See Epstein, 51 U. Chi. L. Rev. at 735. 184 The historical evidence upon which this conclusion is based is well documented in a
number of sources. See, e.g., Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 427-29 (1934); id. at 453-72 (Sutherland, J., dissenting); Ogden v. Saunders, 25 U.S.
(17 Wheat.) 213, 354, 355 (1827) (opinion of Marshall, C.J.); Wright, supra, at 3-26. 185 See Epstein, 51 U. Chi. L. Rev. at 710-17.
186 See id.
Id. at 740; see also D. Kmiec & J. McGinnis, supra, at 17, 35 (contract clause applies only to state “redistributive” laws).
In our view, the principal historical evil of the state debtor-relief laws in question is that they placed certain parties in a preferred contractual position. Although this formulation may not actually differ in substance from Epstein's "rent-seeking” formulation, we believe our formulation may be at least semantically superior to Epstein's given that the most obvious effect of the state debtor-relief laws in question was that they adjusted the terms of contracts in a manner that had the direct effect of placing one of the parties -- contract debtors in a more advantageous contractual position. 188 Therefore, we believe a principled limitation to the police power exception should begin by providing that any state law that has the direct and primary effect of placing one or more contracting parties in a preferred contractual position falls outside the police power exception.
Unfortunately, we have to acknowledge that whether placing a party in a preferred contractual position is the “direct and primary" effect of any particular state law is so vague that, without further elaboration, this standard actually may not advance the analysis very far. 189 We have been unable as yet to discover any principled way of elaborating on the “direct and primary effect” standard. For example, requiring the state to adopt the most economically efficient means to achieve a police power goal might uncover some situations in which the state's chosen method of regulation appears plainly “too far removed” from the state's asserted police power goal. In most cases, however, such a “most efficient means” principle would merely authorize courts to engage in precisely the sort of substantive economic second-guessing of state legislatures that the Supreme Court has rightly rejected for some time now in other contexts.
188 Those state debtor-relief laws included “stay laws” (statutes staying or postponing the
payment of private debts beyond the time fixed in contracts), installment laws (acts providing the debts could be paid in several installments over a period of months or even years rather than in a single sum as stipulated in the agreement), and commodity payment laws (statutes permitting payment to be made in certain enumerated commodities at a proportion, usually three-fourths or four-fifths, of their appraised value). See Wright, supra, at 4. For a further description of some of the state debtorrelief laws existing at the time of the ratification of the contract clause, see n. 145,
supra. 189 The same might be said of limiting the police power exception to the clause by
concluding, in Epstein's terms, that the clause only applies to legislative “rent-seeking” behavior. All legislation helps some more than others; the problem is determining when legislation helps some more than others to a degree or in a manner ihat is unconstitutional under the contract clause.
Another possibility for solving this problem would be to reject the "direct and primary effect" element of the above-suggested police power limitation in favor of a “primary purpose” test. 190 Under this test, the question would be whether the primary purpose of the state law is to place certain contracting parties in a preferred contractual position.
This alternative test has its own problems, however, including most notably the problems of distinguishing between legislative purpose and subjective legislative motivation and of allowing federal courts to roam about in the history of a state statute in search of extra-textual statutory purposes. Additionally, given that it will almost always be possible for the state to articulate some valid health, safety, welfare, or morals justification for its law, a court applying a purpose test will be confronted by precisely the same problem as a court applying the “direct and primary effect” test -- namely, how to determine whether the valid police power purpose is “primary" enough.
Thus, in sum, we believe the textual basis of the police power exception to the contract clause, and the proper limitation of that exception, are both in need of further consideration. It may be that the founders simply failed to provide a police power exception to the clause. Given the practical results of such a conclusion, however, we should not reach that conclusion precipitously.
6. Remedy for a Contract Clause Violation
The Supreme Court apparently has never focused as a general matter on the issue of what remedies are appropriate for a violation of the contract clause. The text of the clause, which provides that “[n]o state shall ... pass any ... law impairing the obligation of contracts," clearly is phrased in terms of a disability on state legislatures. Consequently, the text of the clause would appear to authorize a declaratory judgment proclaiming unenforceable any state law that violates the clause 191 injunction barring the implementation of any such state law. 192
190 Several commentators appear to have adopted this approach. See Epstein, supra, at
732-40; Kmiec and McGinnis, supra , at 33-36. 191 See, e.g., United States Trust Co. v. New Jersey, 432 U.S. 1, 32 (1976) (reversing By contrast, there is no indication in the language or history of the contract clause that a successful claimant is entitled to damages either in place of, or in addition to, injunctive or declaratory relief. Thus, the contract clause is textually distinguishable from the just compensation clause, which includes express language (“nor shall private property be taken for public use, without just compensation”) that appears to make the payment of money appropriate under that clause.
district court's judgment in suit for declaratory relief; holding that contract clause
prohibited New Jersey's retroactive repeal of prior statutory covenant). 192 See, e.g., Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 250-51 (1978)
C. Summary of Principles
In summary, our analysis of the text and history of the contract clause suggests that a valid claim under the clause must include each of the following elements: (1) state legislation that (2) materially diminishes, lessens, or otherwise materially alters (3) the legally binding effect (4) of pre-existing contracts, public or private. Additionally, assuming that a police power exception to the contract clause is somehow textually justifiable, the history of the clause appears to suggest that the scope of that exception should not extend to debtor-relief laws or to other laws that similarly have the direct and primary effect of placing certain parties in a preferred contractual position. Figure 1 on the following page displays these principles in the form of a flow chart that illustrates how Department officials might approach contract clause issues consistent with original meaning principles.
(reversing district court's dismissal of plaintiff's suit for injunctive and declaratory relief in contract clause case).